2.1 Outcome hypotheses and OKRs

Activity 1 (below) aims to help you understand how to measure and continually improve Value.

The value associated with unique change is best articulated as outcome hypotheses (also known as Objectives and Key Results, or OKRs). This creates a clear expectation that it is a hypothesis and may be invalid and that there are unknown-unknowns that will only be uncovered when the work takes place. It also creates a clear expectation that experimentation is required, with people empowered to use their own brains to discover how to best achieve the outcome, or even if the outcome hypothesis is worth continuing trying to achieve.

You can write an outcome hypothesis like this:

Due to

We believe that

Will result in

We will know that we’re on the right track when:

• Measure 1: quantified and measurable leading or lagging indicator

• Measure 2: …

• Measure 3: …

In the short video below, Myles Ogilvie, Principal at Sooner Safer Happier Limited, explains more about the importance of leading and lagging indicators, and how they relate to value and behavioural shifts.

Download this video clip.Video player: bvssh_2022_sept102_definition_of_okrs_compressed.mp4

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Transcript

MYLES OGILVIE:

OKRs, they stand for Objectives and Key Results. If you read publicly what that stands for, we refer to them as Outcomes and Key Results because it's more clear. It helps people to focus on the outcome rather than the particular milestone or goal. So thinking about the outcome and how you will measure that outcome. And with key results, we advise you separate them into leading and lagging indicators.

And that is a super important ninja move for people trying to measure value to separate your key results into leading and lagging indicators. Traditional projects benefits management have usually focused on lagging indicators. Benefits realization, stuff that happens after the project is completed. So they're absolutely useless telling you whether you are building the right thing because they don't materialize until the project is completed. And if you built the wrong thing, they never materialize.

So lagging indicators is the impact the value you hope will arise, having made your investment, but the leading indicators are the super powerful ones. So that is where you're looking at behavioral change. The shift, for example, when Uber is coming to life, you're having a shift in behavior of people from instead of hailing taxis, they're now keying for them on their phone. That's a behavioral shift which has happened because of what that organization did.

And that you can start to measure that behavioral shift in terms of what it is that your enabling. If you enable a small slice of value, are you seeing some behavioral shift as a result of that value, that thing being deployed? So this could be if you are thinking of a new offering, a new student course, for example, are you pitching that on the internet? Are you detecting the downloads?

Are you detecting the interest levels? What's the smallest slice of behavioral feedback you can get to detect whether the thing that you're trying to do is heading in the right direction, is of use. And so that's your leading indicators. And if you have enough leading indicators, then they should start.

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To aid the writing of your first business outcome, use the canvas below (Figure 2).

Activity 1: An outcome hypothesis

Timing: allow at least 30 minutes

On a whiteboard (or digital canvas), draw four quadrants with a circle in the middle, like Figure 2 (below). Label the quadrants as shown in Figure 2 and the circular customer segment in the middle.

For an outcome you are seeking to achieve, and using the completed canvas in Figure 2 for guidance, start to populate each sector with information. It does not matter which sector you start in, and you can iterate each sector as your thinking develops.

As you populate your canvas, reflect on the following questions:

1. For this outcome – how will you decide when your outcome is achieved? Is it based on a date, a scope, budget spent or something else?

2. What is the time horizon you chose for your outcome? (see Pattern 5)

Maximise

Figure 2 Business Outcome Canvas © 2020 Jonathan Smart

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A Business Outcome Canvas diagram with four quadrants and a circular Customer Segment in the middle. The first quadrant (top left) is headed Problem Statement, Insight, Drivers, and below that, it says ‘Due to , e.g. Due to Insight > Belief > Bet), and below that is the following text: ‘We believe ; Will result in ; We’ll know we’re successful when … ; e.g. We believe that Will result in ; We’ll know we’re successful when …’. The third quadrant (bottom left) is headed Key Results Leading Indicators Tree, and below that is the following text: ‘Indicators of performance that may predict future success; e.g. 5k visits to the microsites, 1k downloads of the app, 100 online applications, 90% right first time, Takes less than 5 minutes’. The fourth quadrant (bottom right) is headed Key Results Impact Metrics, and below that, it says ‘Value-based lagging measures of positive impact to customers, colleagues, society, and business, e.g. Improved NPS from 25 to 35, Enabled 2% more first-time home buyers to own property, Increased mkt share from 55% to 65%, Increased diversity by 5%, Increased flow efficiency by 5%, Customer complaints down 8%. The centre circle is headed Who is the Customer/Customer Segment? and contains the following text: ‘What are the behavioural changes, patterns you expect? e.g. Young people, Young professionals, First-time home buyers, Rural unbanked, Busy, always online, or remote from a branch, Ease, security, insights into my spending.’

Figure 2 Business Outcome Canvas © 2020 Jonathan Smart

Over time, as your mastery of this approach increases, consider writing business outcomes as ‘moonshots’ or stretch goals. Traditional objective setting tends to lead to mediocrity, to underpromising in order to overachieve the goal. Achieving 100% regularly is not thinking big enough. Instead, achieving 60% to 70% of a business outcome is doing well.